UPDATE 5-U.S. blacklists unit of Russian oil giant to hurt Venezuela’s Maduro

WASHINGTON (Reuters) – The United States on Tuesday ramped up pressure on Venezuela, blacklisting a subsidiary of Russian state oil major Rosneft that President Donald Trump’s administration said provides a financial lifeline to President Nicolas Maduro’s government.

FILE PHOTO: The Rosneft logo is pictured on a safety helmet in Vung Tau, Vietnam April 27, 2018. REUTERS/Maxim Shemetov

The U.S. Treasury Department slapped sanctions on Rosneft Trading SA, the Geneva-based trading unit of Rosneft, as Washington targeted Moscow over its backing of Maduro’s government.

The move further complicates already-fraught U.S.-Russian relations. Russia condemned the sanctions, saying they amounted to unfair competition and would not deter Moscow from continuing to work with Venezuela. Russia’s Foreign Ministry said the move would further damage relations with Washington and undermine global free trade.

Rosneft called the sanctions an “outrage” and said the company did not engage in any illegal activities, the TASS news agency reported.

U.S. officials accused the Rosneft subsidiary of propping up the Venezuelan oil sector and engaging in “tricks” and ship-to-ship transfers to actively evade American sanctions.

“I think this is a very significant step, and I think you will see companies all over the world in the oil sector now move away from dealing with Rosneft Trading,” Elliott Abrams, the U.S. special representative for Venezuela, told reporters.

Treasury Secretary Steven Mnuchin added in a statement, “The United States is determined to prevent the looting of Venezuela’s oil assets by the corrupt Maduro regime.”

Abrams said Rosneft Trading now handles about 70 percent of Venezuelan oil. U.S. officials have warned companies worldwide about dealings with Rosneft Trading.

The United States in January 2019 recognized Venezuelan opposition leader Juan Guaido as the OPEC nation’s legitimate interim president in the aftermath of Maduro’s 2018 re-election that was widely described as fraudulent. Washington has ratcheted up sanctions and diplomatic pressure on Maduro’s government.

Maduro remains in power, backed by Venezuela’s military as well as Russia, China and Cuba. Maduro has overseen an economic collapse and the socialist president has been accused of corruption and human rights violations. His clinging to power has been a source of frustration for Trump, U.S. officials have said privately.

Along with the sanctions, the United States also issued a general license allowing companies 90 days to wind down their transactions with Rosneft Trading. Tuesday’s sanctions freeze any U.S.-held assets of Rosneft Trading and the subsidiary’s chairman of the board and president, Didier Casimiro, who serves as a vice president of the parent company.

Rosneft shares fell 2.7 percent, underperforming oil prices and the broader Russian index. The sanctions announcement came soon before the close of the Russian market.

A senior Trump administration official, briefing reporters on condition of anonymity, said, “The global markets – oil markets – are adequately supplied, and so we think while this is a serious action, global markets will remain stable.”

It was unclear whether Tuesday’s move will reduce export revenue flowing to Maduro’s government, which continues to enjoy Moscow’s backing in a stand-off reminiscent of the Cold War. Russia and China have called U.S. sanctions against Venezuela illegal.

‘DEEP DIFFERENCES’

The decision to impose the sanctions was cleared by Trump, a senior administration official said. Secretary of State Mike Pompeo on Saturday discussed the blacklisting with his Russian counterpart Sergei Lavrov on the sidelines of the Munich security conference in Germany, the official said.

“Obviously we have deep differences over what is happening in Venezuela and what is the way out for Venezuela,” Abrams said, when asked about Pompeo’s discussion with Lavrov.

Moscow has acted as a lender of last resort for Venezuela, with the government and Rosneft providing at least $17 billion in loans and credit lines since 2006, and has also provided diplomatic support.

Rosneft is the world’s largest listed oil company by output. Through units including Rosneft Trading and TNK Trading it took more than a third of Venezuela’s oil exports last year, according to PDVSA’s documents and Refinitiv Eikon vessel tracking data, for reselling to final customers, mainly in Asia. That way it became the largest intermediary of Venezuelan oil amid U.S. sanctions.

U.S. officials have been mindful of the need for caution in targeting a company as large and far-reaching as Rosneft because of the risk of causing unintended damage to American and allies’ interests.

The Treasury Department eased sanctions on Russian aluminum giant Rusal and one unit of Chinese shipping company COSCO after they sparked mayhem in markets and supply chains.

The United States will have conversations with China and India, the leading buyers of Venezuelan oil, and with Spanish officials over Spanish company Repsol’s activities regarding Venezuela, Abrams said. Repsol declined comment.

The Trump administration has implemented a broad sanctions program against Maduro’s government and has urged the armed forces to turn against him. Maduro has accused the United States of preparing an invasion.

The U.S. action was announced just weeks after Guaido visited Washington and met with Trump. Maduro has called Guaido a U.S. puppet seeking to oust him in a coup.

Reporting by Daphne Psaledakis and Humeyra Pamuk; Additional reporting by Susan Heavey, Dmitry Zhdannikov, Brian Ellsworth, Marianna Parraga and Miguel Angel Gutierrez; Editing by Mary Milliken and Will Dunham

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